Small and medium-sized manufacturers have sharply raised the prices of their goods to try to tackle the strongest cost pressures for more than 20 years, a survey out today shows.
Companies are also facing a fall in demand both in domestic and overseas markets, according to business lobby group the CBI.
But despite those pressures, job numbers are continuing growing in the SME sector and the smallest firms have been particularly active in hiring new staff.
During the three months to April, 51 per cent of companies that took part in the CBI survey said that their average unit costs had gone up. Only seven per cent said they had decreased.
The resulting balance of plus-43 per cent is the highest in more than 20 years and has been driven by much higher energy and raw material costs.
SME manufacturers are now passing on these growing cost pressures to customers. A balance of plus-20 per cent of firms raised domestic prices over the last three months, which is the strongest since April 1995 (plus-32 per cent), and a similar number expect to do so in the coming three months.
Export prices grew at a slower rate overall (a balance of plus-ten per cent), but were much stronger for medium sized firms (plus-23 per cent), who had expected a fall (minus-13 per cent).
The volume of export orders fell unexpectedly, despite the weaker pound, with a balance of 11 per cent reporting a drop. Medium-sized firms were hit quite markedly and bullish expectations of export growth were disappointed as orders fell at their fastest rate (minus-19 per cent) since April 2002 (minus-22 per cent).
Overall, SME manufacturers expanded their workforce over the past three months, but there was a stark difference between the smaller firms - where a balance of plus-12 per cent taking on more staff was the highest since April 1995 - and the medium-sized firms, where a net eight per cent cut jobs.